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What Is the Difference Between Chapter 7 and Chapter 13 Bankruptcy?

One of the most commonly asked questions regarding bankruptcy surrounds the similarities and differences between Chapter 7 and Chapter 13 bankruptcy. While these two plans are both methods for a person to eliminate their debt and start fresh with their finances, the way they are completed and the protections afforded by each are vastly different.

What is Chapter 7 Bankruptcy?

Chapter 7 bankruptcy is the most common and simplest type of bankruptcy for individual consumers. Widely referred to as “liquidation bankruptcy,” Chapter 7 bankruptcy involves selling off your non-exempt assets to pay back as much of your debt as possible. While your bankruptcy trustee will liquidate some of your assets to satisfy creditors, state and federal exemptions allow you to protect certain assets during this process. Once you have paid back as much as possible, any remaining debts will be permanently eliminated.

Chapter 7 bankruptcy is a means-based privilege, meaning that it is only available to those whose financial situations prevent them from being able to afford a repayment plan. Qualifying for Chapter 7 bankruptcy involves taking a “means test,” or a detailed analysis of your income and expenses. If your income is less than the median or if your expenses are greater than your average income, you will most often qualify for Chapter 7. If not, you may still be able to pursue relief to your debt through a Chapter 13 bankruptcy filing.

What is Chapter 13 Bankruptcy?

Chapter 13 bankruptcy is an alternative form of bankruptcy for those who do not quality for Chapter 7. Unlike Chapter 7, Chapter 13 does not involve liquidating your assets, but rather reorganizing your finances to repay creditors over a period of three to five years. If you adhere to your court-approved repayment plan as instructed, any remaining unsecured debts that may remain will be discharged.

Both Chapter 7 and Chapter 13 offer the same protections from collection efforts and foreclosures under automatic stay. Immediately upon filing for bankruptcy, individuals are protected against the following:

  • Wage garnishments
  • Foreclosures
  • Utility disconnections
  • Eviction

It is important to note, however, that filing for bankruptcy oftentimes cannot discharge debts such as student loans, unpaid child or spousal support, overdue taxes, or pension loans. If you are struggling with debt and are considering filing for bankruptcy, it is best to discuss your situation with a legal professional to determine the most appropriate course of action.

Bankruptcy Lawyer in New York

At the Law Office of Simon Goldenberg, PLLC, our New York debt relief lawyer has helped countless clients overcome their difficult financial situations and can help you get on the path towards a debt-free-future. Having earned a 2015 Avvo Clients’ Choice Award and two Super Lawyers® inclusions for our unparalleled advocacy, we can provide the strong legal guidance you need during this difficult time.

Schedule a free consultation or call (888) 301-0584 today to review your legal options.